UAE Corporate Tax Update – May 2025

The Ministry of Finance (MoF) and Federal Tax Authority (FTA) recently released several publications supplementing and amending various corporate tax laws in the UAE.

Below we provide a brief update on selected changes affecting taxpayers in the region, including:

• The domestic adoption of the OECD’s Pillar Two rules
• Ministerial and Cabinet Decisions on
  • Requirements to maintain Audited Financial Statements
  • Taxation of Qualifying Investment Funds and Qualifying Limited Partnerships
  • Determination of Non-Resident nexus in the UAE 
• New FTA Guides on - Interest Deduction Limitation Rules

Domestic adoption of Pillar Two

Cabinet Decision No 142 of 2024 on Top up Tax on Multinational Enterprises (CD142)

In February 2025, the Ministry of Finance (MoF) issued CD142 implementing a Domestic Minimum Top-up Tax (DMTT) in the UAE with effect from 1 January 2025. At present there is no clear indication as to whether the UAE will also introduce an Income Inclusion Rule (IIR) and/or Undertaxed Profits Rule in future.

Pursuant to the OECD’s Pillar Two model rules (also known as the Global Anti-Base Erosion or GloBE Rules), CD142 applies to Constituent Entities that are members of a Multinational Enterprise Group (MNE Group) that has an annual revenue of EUR 750 million or more in its consolidated financial statements for at least two of the four preceding fiscal years.

In summary the DMTT will be imposed on Constituent Entities as well as certain Joint Ventures (JV) located in the UAE where the relevant MNE Group’s effective tax rate falls below 15% in the UAE. However, the DMTT does not apply to “Excluded Entities”, including a Government Entity, international organisation, non-profit organisation, pension fund, an investment fund or real estate investment vehicle that is an ultimate parent entity, or an entity owned such persons, provided certain requirements are met. Investment Entities located in the UAE are also not subject to the DMTT.

CD142 is largely aligned with the GloBE rules and addresses a variety of topics including:

• Scope of the DMTT Rules (Article 1); 
• Computation of Pillar 2 Income or Loss, including accounting standards, adjustments and exclusions to be applied and rules for allocation of income (Article 3); 
• Computation of Adjusted Covered Taxes, including prescribed adjustments, additions, reductions and allocations to be made (Article 4); 
• Determination of Effective Tax rate and Top-up Tax, including overview of the Substance based Income Exclusion to be applied in determining Excess Profit (Article 5);
• Application of DMTT in the event of Corporate Restructurings and in relation to Holding Structures (Article 6);
• Tax Neutrality and Distribution Regimes and Elections (Article 7); • Applicable Safe harbour rules (Article 8); • Transitional rules (Article 9); and
• Administrative aspects such as the date for filing the Top-Up Tax Return (Article 8), Payment of Top-up Taxes (Article 11), Registration (Article 13) and the Pillar Two Information Return (Article 15).

MNE Groups should take steps to determine the impact of the new DMTT rules on their UAE operations and ensure that they are aware of their compliance obligations.

Ministerial Decision No. (88) of 2025 on the Commentary and Agreed Administrative Guidance for the Purposes of Cabinet Decision No. (142) of 2024 on the Imposition of Top-Up Tax on Multinational Enterprises

Article 16 of CD142 provides that the UAE’s domestic DMTT rules must be interpreted and applied consistently with the Commentary and Administrative Guidance as adopted by the Minister.

In pursuance of this, Ministerial Decision No. 88 (MD88) has adopted the OECD’s latest Commentary and Administrative Guidance on Pillar Two as official administrative guidance to be followed with reference to the application and interpretation of CD142 and the DMTT rules.

Corporate Tax

Ministerial Decision No. 84 of 2025 on Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (MD84)

In accordance with Article 54(2) of Federal Decree-Law No. 47 of 2022 (the CT Law), the Minister may stipulate the categories of Taxable Persons that are required to maintain Audited Financials.

MD84 replaces the old Ministerial Decision No. 82 of 2023 for tax periods commencing on or after 1 January 2025 and now provides that the following categories of persons will be required to maintain audited financials:

• Qualifying Free Zone Person; 
• Taxable Person that does not form part of a Tax Group where such person derives revenue exceeding AED 50,000,000 during the relevant tax period;
• a Tax Group shall prepare and maintain audited special purpose financial statements in accordance with the form, procedures and rules specified by the FTA; and
• a Qualifying Free Zone Person engaged in the activity of distribution of goods or materials in or from a Designated Zone in accordance with Ministerial Decision No. 265 of 2023 shall comply with any additional procedures prescribed by the FTA.

For the purposes of calculating the revenue threshold above, MD84 provides that Non-Resident Persons must only take into account revenue derived from a Permanent Establishment and/or nexus in the UAE.

Cabinet Decision No. 34 of 2025 on Qualifying Investment Funds and Qualifying Limited Partnerships for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (CD34)

In April 2025, the Ministry of Finance issued CD84 on Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships (QLPs) which replaces the previous Cabinet Decision 81 of 2023 on the Conditions for Qualifying Investment Funds (CD81). CD34 will apply in relation to Tax Periods that commence on or after 1 January 2025, while CD81 will continue to apply to prior Tax Periods. Some notable changes include:

QIFs

• Any profit distributions received by an investor from a QIF will be exempt from CT. Instead an investor will only be subject to tax insofar as one of the attribution rules described below might apply. However, the attribution rules will only apply in relation to investors that are juridical persons. Accordingly where the investor is a natural person, such natural person will not be required to adjust its taxable income to include any income from the QIF. We briefly consider these attribution rules below:
• Ownership Attribution Rule - Previously, in order to qualify as a QIF, it was a condition that no single investor (together with its related parties) own more than 30% of the ownership interest in the QIF (where the fund has less than 10 investors) or 50% (where fund has ten or more investors). This requirement has now been removed and instead forms the basis for the application of the newly introduced income attribution rules. Namely, where a juridical investor in a QIF exceeds this threshold of ownership interest (or alternatively through certain elements of control such as voting rights, board influence, profit participation or significant influence over QIF business), such juridical investor will be required to adjust its taxable income to include its prorated portion of the QIF’s net profit in its taxable income.
• Immovable Property Percentage Attribution Rule - Where the aforementioned Ownership Attribution rule does not apply and the QIF’s immovable property in the UAE as a percentage of its total assets (defined as Immovable Property Percentage) exceeds 10% in its financial year, the taxable income of a juridical investor shall be adjusted to include 80% of such investor’s prorated portion of the QIF’s Immovable Property Income. Provided, where the QIF makes a distribution of 80% or more of its Immovable Property Income within 9 months from the end of its financial year (i.e. a distributing fund) and the investor disposes of its interest in the QIF prior to receiving such distribution, the investor shall not be required to make an adjustment to its taxable income as contemplated above. Furthermore, where the investor disposes of its interest in the QIF (and the participation exemption does not apply), its taxable income in the period that the disposal takes place shall be adjusted to exclude any undistributed profits that was previously included in the investors’ taxable income in relation to the interest disposed of (provided this excluded amount does not exceed the gain arising from such disposal).
• The prorated Immovable Property Income to be attributed under the Attribution Rule contemplated above shall be calculated based on the investor's Tax Period and the period to which a profit distribution relates for a distributing fund, or the holding period of the Ownership Interest for a QIF that does not distribute such percentage within the aforementioned timeline (i.e. in the case of a non-distributing fund).
• Depreciation - In accordance with the Ministerial Decision on depreciation adjustments for investment properties, a QIF will be deemed to have made an election to apply depreciation deduction to any investment properties held at fair value. An Investor whose taxable income is adjusted under either of the attribution rules described above, may choose to adjust its taxable income to take account of these depreciation adjustments. However, prior depreciation deductions will be recouped upon the earlier of the QIF disposing of the immovable property or the investor disposing of its interest in the QIF.

REITs 

• As before, Real Estate Investment Trust (REITs) may apply to the FTA to be considered an exempt QIF where certain ownership, asset value, and income generation thresholds are fulfilled. Where the REIT qualifies as a QIF, any profit distributions received by an investor from a QIF will be exempt from CT.
• An investor will only be subject to tax insofar as the attribution rule described below applies. The attribution rule will only apply in relation to investors that are juridical persons. Accordingly where the investor is a natural person, such natural person will not be required to adjust its taxable income to include any income from the REIT. We briefly consider the attribution rule below:
• REIT Attribution Rule - The taxable income of a juridical investor in a REIT shall be adjusted to include 80% of such investor’s prorated portion of the REIT’s Immovable Property Income. Provided, where the REIT makes a distribution of 80% or more of its Immovable Property Income within 9 months from the end of its financial year (i.e. a distributing fund) and the investor disposes of its interest in the REIT prior to receiving such distribution, the investor shall not be required to make an adjustment to its taxable income as contemplated above. Furthermore, where the investor disposes of its interest in the REIT (and the participation exemption does not apply), its taxable income in the period that the disposal takes place shall be adjusted to exclude any undistributed profits that was previously included in the investors’ taxable income in relation to the interest disposed of (provided this excluded amount does not exceed the gain arising from such disposal).
• The prorated Immovable Property Income to be attributed under the Attribution Rule contemplated above shall be calculated based on the investor's Tax Period and the period to which a profit distribution relates for a distributing fund, or the holding period of the Ownership Interest for a REIT that does not distribute such percentage within the aforementioned timeline (i.e. in the case of a non-distributing fund).
• Depreciation - Similar to what has been stated above in relation to a QIF, an Investor in a REIT whose taxable income is adjusted under either the attribution rule described above, may choose to adjust its taxable income to take account of depreciation adjustments. However, prior depreciation deductions will be recouped upon the earlier of the REIT disposing of the immovable property or the investor disposing of its interest in the REIT.

QLPs

• CD34 introduces the concept of a QLP. A QLP is defined as a limited partnership that is a juridical person established pursuant to the relevant legislation in force in the UAE for the sole purpose of collective investment, under a legal framework that explicitly allowed for the establishment of such partnerships on or before 1 June 2023, or any other legal framework as may be prescribed by the Minister.
• These types of limited partnerships would typically be taxable persons under the CT Law and would not be considered tax transparent under Article 16 of the CT Law. As a result an express exemption has been created for these entities.
• A QLP may apply to the FTA for exemption where the following conditions are met:
  • The principal business / business activities conducted by the QLP are investment business;
  • The QLP does not derive any income from the exploitation of immovable property located in the UAE; and
  • The main or principal purpose of the QLP is not to avoid corporate tax.
• A juridical person wholly directly or indirectly owned and controlled by a QLP that is exempt from CT may also apply to the FTA to be exempt from CT where certain requirements are met.
• Where the QLP qualifies for exemption, any profit distributions received by an investor from a QLP will be exempt from CT. An investor will only be subject to tax insofar as the attribution rule described below applies. The attribution rule will only apply in relation to investors that are juridical taxable persons. Accordingly where the investor is a natural person, such natural person will not be required to adjust its taxable income to include any income from the QLP. We briefly consider the attribution rule below:
• QLP Attribution Rule - The investor’s taxable income shall be adjusted to include its prorated portion of the QLP’s net income (and any juridical person that is exempt from Corporate Tax and wholly directly or indirectly owned and controlled by the QLP, as reflected in the financial statements) after deducting the income attributed to the Investment Manager.

Cabinet Decision No. 35 of 2025 on Determination of a Non-Resident Person’s Nexus in the State for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (CD35)

CD35, issued with effect from 1 January 2025, sets out scenarios in which a non-resident juridical person will be determined to have a nexus in the UAE, particularly to expand the ambit of the nexus rules to foreign investors in QIFs and REITs.

Establishment of a Nexus

Under Article 2 of CD35, any juridical person incorporated or otherwise established or recognized in a foreign jurisdiction will have a nexus in the UAE where:

1. The person derives income from any immovable property in the UAE, including income derived from the right in rem, sale, disposal, assignment of rights, direct use, letting, subletting and any other form of exploitation of immovable property;
2. Where the person is mandated to adjust their taxable income under Articles 3(2), 3(5), or 4(3) of CD34. The nexus rules would therefore extend to non-resident juridical person investors in QIFs and REITs that are required to adjust their taxable income under the attribution rules described earlier.

Under the second nexus category, the nexus shall be created in the UAE as of the date on which dividends are distributed by an investment fund that distributes 80% (eighty percent) or more of its Immovable Property Income within (9) nine months from the end of such fund’s Financial Year (i.e. distributing fund) or the date of acquiring an Ownership Interest in an investment fund that does not distribute such percentage within the timeframe (non-distributing fund).

Non-resident persons that have a nexus in the UAE are required to register for CT with the FTA.

Interest Deduction Limitation Rules | CTGIDL1

The FTA has recently issued a new CT Guide on Interest Deduction Limitation Rules. The guide provides general guidance on a variety of aspects, including:

• the meaning of interest under the CT Law;
• the general principles impacting the deductibility of interest expenditure;
• the application of the Specific Interest Deduction Limitation Rule;
• the application of the General Interest Deduction Limitation Rule (including an overview of rules regarding carry forward and utilisation of disallowed Net Interest Expenditure);
• exceptions to the General Interest Deduction Limitation Rule; and
• the interaction of the interest limitation rules with each other and other provision of the CT Law.

The Guide provides valuable insight to Taxable Persons on the tax treatment applicable to interest expenditure incurred as part of business operations in the UAE and should be consulted in the event of uncertainty regarding the deductibility of interest expenditure.

Our Tax Services

Our Tax Team are able to assist you in better understanding the impact of these recent changes on your tax affairs and provide you with tailored advice to ensure optimal tax structuring.

We provide clients with specialist tax advice, planning and implementation support to achieve optimal tax outcomes for their personal and business interests in the UAE. Should you require support, please feel free to contact Theunis Claassen, our Head of Tax at t.claassen@hadefpartners.com to arrange an initial discussion regarding your taxes.